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$5,000 Thursday – Cashing in Our Shorts and Looking for the Bounce Lines

Wheeeee!  

I love a good correction, especially when we call it.  Yesterday, in the Morning Report (which you could have in your hands every day, pre-market for just $3/day), when the Futures were UP, I said:

We also have a potential 1,000-point drop in the Dow (/YM) to look forward to if it fails at 26,250 so yes to Futures shorts below that line if it fails, with tight stops above.  If the S&P is below 2,860 and the NYSE is still below 13,000 and the Nasdaq fails 7,275 and the Russell is below 1,620 – that's going to confirm a bearish market and we'll get more aggressive on our shorts but, so far, we're pretty well-balanced in our 5 Member Portfolios and we will review them today in our Live Trading Webinar.

The Dow (/YM) Futures did indeed bottom out this morning at 25,174, past our 1,000-point goal and this morning, in our Live Member Chat Room (which you can also subscribe to) I sent out a Trading Alert to our Members at 7:49 saying:

I think 2,750 on /ES is the best long line with tight stops below and 6,780 on /NQ should be fun if dip buyers come in with a stop below 6,775 (Nasdaq loves those 25-point lines) and then we'll watch the rest of our bounce lines to see if we're going to add more hedges or take profits on the ones we have.  

Things are already off to a good start with the S&P flying back up to test the 2,800 line and S&P (/ES) Futures contracts pay $50 per point so a 50-point move would be good for gains of $2,500 per contract on the bounce but, now that we're testing 2,785, we need to keep a stop at 2,780 and settle for a $1,500 per contract gain if the market is simply weakly bouncing pre-market.

I don't usually do this but I put a lot of work into the morning Alert for our Members and there's nothing more important this morning than discussing the bounce lines so I'm going to give you cheapskate readers the opportunity to see just a small part of what we do in our Live Member Chat Room – this PSW Report is essentially just my pre-market commentary for our Members – the real meat and potatoes is what we do in the Live Chat Room all day long:

 

 

 

Good morning! 

Well, we got our 1,000 points so now what?   When I called that yesterday morning I didn't think it would happen within 24 hours so it's a bit disturbing and now we have to consider whether or not this is going to be a good place to deploy some cash.  

/YG is up $600 per contract from yesterday's Webinar call so that's good enough on those and it's very disturbing that this sell-off is coming along side a 1% Dollar drop as it means the markets are even weaker than they look:

Still getting killed on the /RB shorts but I have 8 long now at $2.0001875 (missed it by that much…) and still down about $1,000 per contract, which is 2.5 cents on /RB and I think we can take that back if EIA isn't as tragic as API and I THINK API was reflecting last week's terrible EIA number – so it's behind the curve and I still think the hurricane will shut refinery production and also cause less oil to be imported through the gulf this week – but we won't see the result until next week's inventories.

Overnight the Dow tested 25,174, which is a bit above the 200-day moving average which had better be strong-bouncy or we're heading much lower!  This was a long-overdue correction and will be good and healthy if the 200 dmas hold up but RUT is now below the line so it needs to take back 1,620 (now 1,559) before I feel good about bottom-fishing. 

Anyway, one thing at a time.  So 25,140 is the 200 dma on the Dow and we've fallen from 27,000 so I'd call it 2,000 points to 25,000 in the Big Picture but, in the littler picture, there was super-toppy action at 26,500 ahead of this drop and I'd go by that and a 5% fall to 25,175 is exactly what we got this morning.

Remember, as we were saying in the Webinar, we also have to pay attention to the time-frame of the bounce because a strong bounce that takes longer than the dip is not a very strong bounce and more likely to fail so we've only got today to hit that 25,700 line or we'll have to push our hedges higher into the weekend.

Given the Dow had a 5% correction, we can expect the same action from the other indexes so:

2,940 x 0.95 is 2,793 so let's call it 2,800 and call it 2,950 to keep things neat and that's 150 points so 30-point bounces to 2,830 and 2,860.  Problem is we overshot the mark but that's OK as a 30-point (20%) overshoot to 2,770 is normal enough but we need to see that taken back very quickly to support the 5% line. 

From an intra-day perspective, we stick closer to what actually happened on the chart and that's 2,880 (the 50 dma) to 2,750, which is 130 points so call those bounces 25 points to 2,775 and 2,800 so just getting back to the -5% line is the goal of the day otherwise – DOOM!!!!

Nasdaq 7,700 was the high-water mark and that is exactly 42.5% over the old Must Hold level of 5,400, where we topped out in 2000.  As we know, it's really the AAPLDAQ so let's consider AAPL's high of $233 and 5% below that is $221 and AAPL blew that but they really topped out at $230 since 9/1 so better to work with that and call it $218.50 which is $12 so $2.50 bounces and $216 is the overshoot.

Pretty much we can watch AAPL for the story of the whole market.  Is the most valuable company on Earth (by a wide margin now) and the only one that comes close to justifying it's $1Tn valuation able to attract bidders after a 5% correction.  If not – what hope can the rest of them have?  If AAPL fails to hold $216 – then the 10% line on AAPL is $207 and below that is a 20% correction = all the way to $184 but, as you can see on the chart – AAPL was obeying those lines on the way up – so why wouldn't it on the way down?

Pre-market we're at $213.  

So, getting back to /NQ, we're in a 10% correction (which is why SQQQ was our primary hedge) from 7,700 to 6,930 and the 5% correction was 7,315, which held on 10/8 but wasn't even a pause yesterday so I hesitate to even used 7,315-6,930 as a range.  If I did, the strong bounce of that drop would still be the weak bounce of the 10% drop so I'd have to say that NOTHING less than the weak bounce of the 10% drop on the Nasdaq would be in the least bit bullish.

7,700 to 6,930 is 770 points and 20% of that is 154 points so 7,084 we can call 7,100 and that's our primary goal and 150 over that is 7,250 and that's where we start to recover.  Given that AAPL $184 is RIDICULOUS and would cause me to sell everything and buy AAPL, I'd say we're not going to get a 20% correction or, if we do – it will be a brief one.  

We are, however, in a panic and there are other Nasdaq stocks that deserve to be much lower so AAPL may get dragged down with the index – I just don't see it lasting.  We're checking our bounce lines mostly to know when to cash out our hedges – not so much to get bullish too quickly!  

So NOTHING less than 7,100 on /NQ is going to be a bullish indicator and the same 150-points below 6,930 – call it 6,800 would be an overshoot to the downside on a 10% correction but below that is – DOOM!!! 

That leaves us with the Russell, the index that started this disaster.  It topped out at 1,740 back in early Sept and everyone acted like it didn't matter that small caps were correcting (or that the rest of the world was correcting) until, suddenly, it did.  I don't want to say I TOLD YOU SO but….

Anyway, 1,440 was the Must Hold line on the RUT and 1,728 was the 20% line so that's the line we'll use and that makes 1,555 the 10% correction but really it's 1,584 that matters as that's the 10% line from the Must Hold, which always takes precedence once you get in the zone.  

That's right, as of this morning, the 1,584 box on the Big Chart goes RED for the first time since early May!  The 12,800 box is also red on the NYSE and it's been a long, long time since the boxes have come into play but gaining two red boxes is VERY BEARISH and we can't be bullish again until one of them goes away – so both of those lines are VERY SIGNIFICANT.  

So, getting back to the RUT, it's 1,584 or bust into the weekend and we're at 1,560 pre-market, off a low of 1,552 – which is the 10% line so, below that is – DOOM!!!

Hopefully, that's a nice, clear guideline to get your day's trading started.  

I think 2,750 on /ES is the best long line with tight stops below and 6,780 on /NQshould be fun if dip buyers come in with a stop below 6,775 (Nasdaq loves those 25-point lines) and then we'll watch the rest of our bounce lines to see if we're going to add more hedges or take profits on the ones we have.  

So we're playing for the bounce but we're a bit skeptical as we feel there may be a bit more selling to come.  As noted, we had a long trade on Gold (/YG) in yesterday's Live Trading Webinar that made just under $600 per contract when I called it off but Gold is still going higher this morning and that's going to be great for our long-term plays on the miners, as well as our 2017 Trade of the Year, Wheaton Precious Metals (WPM), who got attractively cheap again last month, leading to this call for our Long-Term Portfolio:

WPM – Time is our friend on this one as we have to wait patiently for silver to pop.  Our 40 2020 $15 calls are $3.55 ($14,200) and I don't want to sell them unless they go below $3.25 ($13,000) so we risk $1,200 but no worries if they stay over $17.   I want to add 50 of the 2021 $12.50 ($6)/20 ($2.25) bull call spreads at $3.75 ($18,750) so that's our "roll" and hopefully we can eventually get that much for the 2020 $15s to make it an even one

Short Put 2020 17-JAN 22.50 PUT [WPM @ $17.26 $0.00] -10 1/3/2018 (463) $-4,000 $4.00 $1.85 $-1.15     $5.85 $-0.10 $-1,850 -46.3% $-5,850
Long Call 2020 17-JAN 15.00 CALL [WPM @ $17.26 $0.00] 40 9/4/2018 (463) $15,000 $3.75 $0.05     $3.80 $0.05 $200 1.3% $15,200
Long Call 2021 15-JAN 12.50 CALL [WPM @ $17.26 $0.00] 50 9/21/2018 (827) $28,250 $5.65 $1.03     $6.68 - $5,125 18.1% $33,375
Short Call 2021 15-JAN 20.00 CALL [WPM @ $17.26 $0.00] -50 9/21/2018 (827) $-10,850 $2.17 $0.42     $2.59 $0.09 $-2,100 -19.4% $-12,950

So that's our position on WPM at the moment in our Long-Term Portfolio and already the new spread is up about $3,000 with a very nice recovery from the old calls so now we want to watch the stop at $3.25 carefully and raise it to $3.50 when we cross $4, etc.  Anyway, the reason I'm bringing it up is it's still good for a new trade since the short puts are in the red so (without the extra 40 long 2020 calls, which you don't need for a new trade), the net of the spread is just $14,575 but the upside potential at $20 is $62,500 for a potential $47,925 (328%) gain over the next two years.  That's a nice trade!  

When the market is correcting, we look for things that are good to buy and WPM is a good value play and also a good hedge against Dollar weakness with a lot of leverage to silver and gold but, because they are a contract streamer and not a miner, they are also hedged against continued weakness in the metals market – as long as it doesn't go on for more than a year.  

There are always going to be plenty of stocks to buy in a correction like this – you just have to know where to look and this, so far, is just a mild correction but that doesn't stop people from irrationally panicking out of some positions – leaving us with some great opportunites for bargain-hunting.  

Nothing has happened to support the markets so far but here are some of the things that can turn things around – at least to create a dip-buying rally but whether or not that's enough to crack the strong bounce lines remains to be seen:

  • Trump could stop calling the Fed "crazy" (not likely, he needs someone to blame for the market sell-off since he's been using the market rally to measure his success)
  • The Fed could capitulate to Trump and say they won't raise rates anymore (not likely as yesterday's 10-year auction was not pretty – even at 3.25%.  Today there's a 30-year sale that also is not likely to show much demand).  
  • Brexit could be worked out (50/50 – at this point, Germany needs to put this behind them as badly as the UK does)
  • China trade deal could be worked out (not from the sound of yesterday's chatter) 
  • Tomorrow's Bank Earnings (C, FRC, JPM, PNC, WFC) could be better than expected (not likely with housing tanking over the summer)

So we're playing for the bounces but mostly watching and waiting to see if any of the negative news items change and whether or not any of the bounce lines hold but, if not, we'll be adding some more hedges into the weekend – into this evening actually – as I'm very worried about those bank earnings!  

 


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  1.  

    Posted last night but for reference here!


  2. So much for the American dream:

    https://ritholtz.com/2018/10/born-rich-or-talented/

    Using one new, genome-based measure, economists found genetic endowments are distributed almost equally among children in low-income and high-income families. Success is not.

    The least-gifted children of high-income parents graduate from college at higher rates than the most-gifted children of low-income parents.


  3. Good Morning.


  4. Stjean – The above chart shows that only 'white folk' was used in this study due to "limited availability of genomes from other races"

    I wonder what the chart would look like when including everyone else….


  5. 1020 – Probably not good I imagine! But this chart clearly applies to someone who currently occupies a certain White House!


  6. Phil / LB –  Is This is usual seasonal uptick  of do you see more here compares to other yoy upticks in these numbers below?

    Shares of L Brands Inc. (LB) surged 3.9% in premarket trade Thursday, after the Victoria's Secret parent reported September sales that rose from a year ago and said it was pursuing "all alternatives" for its La Senza business. The company said La Senza, which has 126 company-owned stores in North America, is expected to record a 2018 operating loss of $40 million and revenue of $250 million. Separately, the company said net sales for the five weeks ended Oct. 6 rose 8% to $1.06 billion, while same-store sales increased 5%. That follows August net sales growth of 1.7% to $856.3 million and a same-store sales rise of 1%. The FactSet consensus for fiscal third-quarter (through October) is for net sales of $2.69 billion and same-store sales growth of 1.1%. L Brands' stock has tumbled 53% year to date through Wednesday, while the SPDR S&P Retail ETF (XRT) has gained 4.4% and the S&P 500 has tacked on 4.2%.


  7. I'm sorry stjean, but the current occupant is orange…. ;)


  8. Good morning, All!

    The webinar replay is now available!

    https://youtu.be/j4v65FQBSbE


  9. Good morning! 

    Nice little move up so far, we'll see what sticks.

    Dow's got to hold that 200 dma but 350-point cushion at the moment and /ES is 2,780 so 15-points over the 200 dma at 2,765 so that's the other key level to watch.  

    Dream/StJ – Carlin summed that up – you must be dreaming if you believe in that crap.  The system is totally gamed to favor the Top 10% and really the Top 0.1% but the top 10-0.11% can't imagine they're not "in the club" simply because they have the bottom 90% to feel superior to.  

    LB/Batman – Well it's back to school (Pink is huge for kids) and, as noted many, many times, last year's comps were impacted by them dumping swimwear and some clothing lines, which hurt comps last year so this is just "getting back to normal".  They just closed down Henri Bendel and now they are trying to get rid of La Senza to focus on what makes money – which is smart but it's still going to be painful turnaround though, in the long run – I'm still very confident it will work out.

    Short Put 2020 17-JAN 37.50 PUT [LB @ $28.52 $0.00] -15 5/11/2018 (463) $-14,550 $9.70 $2.15 $-12.05     $11.85 - $-3,225 -22.2% $-17,775
    Short Put 2020 17-JAN 30.00 PUT [LB @ $28.52 $0.00] -15 5/24/2018 (463) $-7,800 $5.20 $1.40     $6.60 - $-2,100 -26.9% $-9,900
    Long Call 2021 15-JAN 27.50 CALL [LB @ $28.52 $0.00] 50 9/21/2018 (827) $34,750 $6.95 $-1.15     $5.80 - $-5,750 -16.5% $29,000
    Short Call 2021 15-JAN 35.00 CALL [LB @ $28.52 $0.00] -50 9/21/2018 (827) $-21,650 $4.33 $-1.36     $2.98 - $6,775 31.3% $-14,875

    /RB still very painful at $1.975 – hopefully EIA will save me.

    /CL down to $72.


  10. Oh, I'm out of here at 1pm, by the way, have to fly up to NYC for meetings.  

    Semi-normal day tomorrow.


  11. Phil, re: China, regardless of the tough talk now, there are some opinions out there that the fix is in for a deal before November elections, avoiding the tariff doomsday scenario and boosting the markets.  Looking at recent history of trade negotiations,  likely to be a very good deal for China with some sops to the US.


  12. PYXUS (PYX) Top Trade – the devil is in the detail. 

     

    Definitely an interesting top trade – with PYX closing @ $40 yesterday, the $15/55 BCS is trading around $13 on TOS (mid points of the bid/ask) – so a $40 spread for $13 and starting $25 in the money. Yowza! I haven't seen those kind of relative prices in a long while. Note: Prices have changed a bit since yesterday.

     

    But first let's sniff around the news on the stock. This news item from Yahoo Finance https://finance.yahoo.com/news/pyxus-stock-could-backfire-over-181506745.html?.tsrc=rss  mentions " Pyxus stock has roughly tripled so far this year, with PYX stock gaining 37% on Monday based on, apparently, a single tweet." 

     

    Reading the full article reveals a lot more about PYXUS – it's a renamed Alliance One international, one of the two main competitors in the tobacco dealing business – the other is Universal Corporation (UVV). Both companies select, purchase, process, pack, store, and ship leaf tobacco. They purchase tobacco from more than 35 countries and serve manufacturers of cigarettes and other consumer tobacco products in more than 90 countries. 

     

    Now, let's look under the hood of this tobacco dealing business. The only customers are cigarette manufacturers, and you can count those on the fingers of one hand: Philip Morris International, Altria, British American Tobacco (BAT), Imperial Tobacco and Japan Tobacco International. You'll need the other hand for the small players. How the cigarette business goes, so goes the business of PYX and UVV. Just how is the conventional cigarette business going? Check out Philip Morris International and BAT's recent performance. The conventional cigarette business is crumbling in the developed world.

     

    We can then poke around in some more detail. The business of being a tobacco dealer means taking orders in advance from the international cigarette manufacturers and then contracting with the farmers to grow the tobacco types and quality grades that have been requested. That requires a significant cash commitment as they are effectively substituting the workings of a futures market in tobacco, but unfortunately no futures market exists in tobacco. In fact it would not surprise me if every now and again the international tobacco dealers have to request financing from the large tobacco manufacturers. In effect the tobacco dealing business is at the mercy of a small number of big customers (the famous five above) – and in certain countries the big tobacco manufacturers already contract directly with the tobacco farmers.

     

    Alliance One changed their name to Pyxus on September 12th, 2018 – see form 8k here 

     

    Checking out the Pyxus International website, 'About' section in Feb 2018, they entered the Canadian industrial hemp and legal cannabis market. Their October 2nd, 2018 press release states:

     " Pyxus International Inc. (NYSE: PYX) is pleased to announce that its indirect Canadian subsidiary, Goldleaf Pharm Inc., has received its Access to Cannabis for Medical Purposes Regulations (ACMPR) cultivation license from Health Canada. The license, awarded September 28, 2018, permits Goldleaf Pharm to begin cultivating medicinal cannabis at its Simcoe, Ontario facility" 

     

    See this news article on the majority stake purchase by Alliance One/Pyxus of two Canadian companies

     

    So a company with a historical business model which is far from awe inspiring, that is inextricably linked to the fortunes of the conventional cigarette business worldwide which is sliding and may soon be tumbling, announces back in February 2018 that it has bought majority stakes in a couple of Canadian cannabis companies and the share price does what? It goes from $12.50 to $30 in the space of a month. Pretty impressive? By August 2018 it was back at $14. But it will be some time before profits from cannabis will replace the profits from dealing in tobacco (which are far from stellar).

     

    Pyxus certainly sounds a lot more New Age cannabis than Alliance One International. I just hope that investors are not that stupid to jump on the bandwagon without doing their homework.

     

    It looks like in the land of the blind the one-eyed man still is king.

     

    But the theoretical returns on that TopTrade are impressive. And wisely, no PUT sale.


  13. By the way, that's why the LTP is kicking ass in this downturn, we dumped all the high-flyers and doubled down on the value plays like LB, which then pops 8% on the tiniest bit of good news.

    As i often have to explain to Jabob, it's not a bug but a FEATURE when we go from a 1x entry to a 2x entry to a 4x entry as we roll and DD to lower and lower strikes.  That's how we work into our value positions over time and the goal is to have large positions in value stocks that get very cheap.  

    Yes, occasionally our value proposition is wrong and they go all the way down but we rarely lose more than 1/2 an allocation block – even in a disaster and the times we make money make up for that in spades.  This LB position is currently down $26,825 (not counting today's move) but, at $35, it pays $37,500 while currently showing a $13,550 loss in the current position so we can turn around over $50,000, despite the drastic sell-off, if LB just gets to our adjusted $35 goal.

    LB
    50 LB 2021 15-JAN 35.00 CALL SC $ 35,000.00 9/21/2018 $ 21,650.00   20
    $ -13,350.00 -61.7 %
    50 LB 2021 15-JAN 27.50 CALL LC $ 34,750.00 9/21/2018 $ 30,000.00   20
    $ -4,750.00 -13.7 %
    10 LB 2018 20-JUL 35.00 CALL SC $ 0.00 5/24/2018 $ 1,600.00 7/20/2018 57
    $ 1,600.00 100 %
    15 LB 2020 17-JAN 30.00 PUT SP $ 9,300.00 5/23/2018 $ 7,800.00   141
    $ -1,500.00 -19.2 %
    20 LB 2020 17-JAN 35.00 CALL SC $ 5,000.00 5/24/2018 $ 11,000.00 8/23/2018 91
    $ 6,000.00 54.5 %
    30 LB 2020 17-JAN 20.00 CALL LC $ 42,000.00 5/23/2018 $ 32,400.00 9/21/2018 121
    $ -9,600.00 -22.9 %
    15 LB 2020 17-JAN 40.00 CALL SC $ 3,750.00 4/24/2018 $ 6,375.00 5/23/2018 29
    $ 2,625.00 41.2 %
    30 LB 2020 17-JAN 30.00 CALL LC $ 23,400.00 4/20/2018 $ 27,900.00 6/5/2018 46
    $ 4,500.00 19.2 %
    15 LB 2020 17-JAN 37.50 PUT SP $ 16,800.00 5/11/2018 $ 14,550.00   153
    $ -2,250.00 -15.5 %
    10 LB 2020 17-JAN 45.00 PUT SP $ 14,650.00 3/1/2018 $ 11,000.00 4/23/2018 53
    $ -3,650.00 -33.2 %
    30 LB 2020 17-JAN 50.00 CALL SC $ 6,000.00 3/1/2018 $ 20,550.00 4/20/2018 50
    $ 14,550.00 70.8 %
    30 LB 2020 17-JAN 35.00 CALL LC $ 39,000.00 3/1/2018 $ 18,000.00 4/26/2018 56
    $ -21,000.00 -53.8 %
    Total Gain/Loss for LB
    $ -26,825.00 -11.7 %

    We initiated the position on 3/1, with LB at $45 and we targeted $50 with an $18,350 entry on the $45,000 spread so we HOPED to make $26,650 off our initial 1/3 allocation ($50,000 blocks) and now, after all the chagrin, we're down $26,825 – about as much as we hoped to make on a position that went totally against us all the way down.  So we could have cut and run with 1/4 or 1/2 allocation losses but we decided to press it and completed our last roll on 9/21 – still down 1/2 an allocation but now in a much better position to hit our new targets.  

    On the whole, it's just the first 6 months of a two-year trade (now a 3-year trade) but think back on all the drama we've had over this one.  The point is, this happens as often as not when we're scaling into value positions.  We don't know when traders will stop panicking – they are clueless as to the Fundamentals and the actual VALUE of the company so, to them, $45, $40, $35, $30 are just numbers and the company is only worth what the chart says it is and the chart is simply a summary of the mob's opinion – it has nothing to do with proper analysis. 

    Fundamental traders take advantage of that but sometimes we're wrong but sometimes we end up with a huge portfolio filled with value positions – right when value comes back into fashion.  Those are the times we have been positioning for all along! 

    Short Put 2020 17-JAN 37.50 PUT [LB @ $31.80 $3.28] -15 5/11/2018 (463) $-14,550 $9.70 $-0.30 $-12.05     $9.40 - $450 3.1% $-14,100
    Short Put 2020 17-JAN 30.00 PUT [LB @ $31.80 $3.28] -15 5/24/2018 (463) $-7,800 $5.20 $-0.20     $5.00 - $300 3.8% $-7,500
    Long Call 2021 15-JAN 27.50 CALL [LB @ $31.80 $3.28] 50 9/21/2018 (827) $34,750 $6.95 $1.30     $8.25 - $6,500 18.7% $41,250
    Short Call 2021 15-JAN 35.00 CALL [LB @ $31.80 $3.28] -50 9/21/2018 (827) $-21,650 $4.33 $0.82     $5.15 - $-4,100 -18.9% $-25,750

    Now it's net -$6,100 that one position in the LTP just popped $20,000 this morning but ONLY because we didn't panic on the way down and stuck with our trading plan!  

    Submitted on 2018/05/11 at 10:46 am

    LB/Batman – Does that include Pink?  Seems to be doing very well.  

    Again, this "disaster" company where we have 30 $30 calls and 15 short $37.50 puts at net $6,600 (break-even around $35) also pays a $2.40 dividend if we convert.  We initiated on 3/1, when the stock was $45 so even if we lose 100% on the calls and get assigned at net $39.50 – we still have a 10% discount from where we first entered and then we could DD at $32.50 to average $35.50 on 3,000 shares and we could sell the 2020 $35 calls for $4.50 and the $25 puts for $3.90 to drop our net to $27.10/26.05, which makes the $2.40 dividend almost 10% while we wait to see if we get called away with an $8 profit (29%).

    Even from that, the worst/worst case is we end up being assigned another 3,000 shares giving us 6,000 @ 26.05 (156,300) and I'm pretty sure I would love owning that long-term!  

    So, from a 1x net $7,450 entry at $45, if all had gone perfectly we would have gotten back $45,000 for a $37,550 profit at $50 but now we're still in a 1x spread but, even at 2x after an assignment ($81,300), we get back $7,200 in dividends plus $105,000 if called away at $35 – still a $30,900 profit. 

    It's not bad for a stock that dropped 33% on us!  


  14. China/Taihu – I don't think we can afford to wait that long for a China deal.  3 or 4 more weeks of this would become unsalvageable.  

    PYX/Winston – It's the option prices that make it attractive – I could almost care less what the company actually does as long as I think it will continue to exist and we will continue to be able to sell expensive short calls against a relatively inexpensive long-term upside hedge.  That's all this is about.  That's also why we didn't sell puts as I DON'T want to own PYX if they collapse but, unlike most pot stocks, they do have $1.8Bn in revenues and even some profits – considering $40 is just a $400M valuation (p/e 5) – I don't consider it a bad idea to establish the position for our purposes:

    Year End 31st Mar 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,241 2,355 2,067 1,905 1,715 1,846 1,860     -3.8%
    Operating Profit $m 161 48.1 98.1 201.8 84.9 113.6 116.3     -6.7%
    Net Profit $m 23.9 -102.5 -27.9 65.5 -62.9 52.4 84.2     +17.0%
    EPS Reported $ 2.74 -11.7 -3.16 7.38 -7.05 -0.78 2.74      
    EPS Normalised $ 1.35 -8.96 -3.08 -0.32 -7.79 -2.07 2.88      
    EPS Growth % -34.8                  
    PE Ratio x           n/a 13.9 n/a n/a  
    PEG x           n/a n/a n/a n/a
    Profitability

    If it goes back to $12.50 – we can still sell short calls.  If it drops to $10 – we can still sell short calls.  If it accidentally goes up – we make a fortune.  Pretty simple premise which, in this case, is only complicated by Fundamentals we don't really care about in this numbers trade.  

    By the way folks, in case you missed it, the PYX trade for the LTP is:

    PYX is getting into pot and up and down like crazy but what I really like about them for the LTP is:

    • Buy 25 PYX 2021 $15 calls for $30 ($75,000) 
    • Sell 25 PYX 2021 $55 calls for $20 ($50,000) 
    • Sell 5 PYX Nov $50 calls for $7 ($3,500) 

    So the net is $21,500 and we are selling just 37 out of 828 days and it's a 1/5 sale so we have 20 of those ahead of us for a potential $70,000 return on our $21,500 investment PLUS up to $100,000 back on the spread if we're over $55.  I love this trade!  

    $15s last went off at $31.30, $55s at $20 so close enough and we got our $7 for the Nov $50s, which is the more important part of the trade as the money made from selling short calls will quickly make up the net cost of the spread.  

    I would do it in the OOP but the margins can get out of hand for the small portfolio if, for some reason, PYX pops another 100% in a month.  Mechanically, however, for the LTP, we have tons of free margin and we're 5x covered so even a move to $100 would cost us $43 x 500 = $21,500 but we'd still be sitting on 25 $40 spreads ($100,000) that would be $45 in the money at net $43,000 (the loss plus our initial entry) so, as you can see – manageable for the LTP, where we can ride it out but not for the OOP, where it would kill our buying power while we waited for it to normalize. 


  15. Damn, we only got the /NG inventory, EIA at 11.  

    And now OPEC is cutting outlook!

    EIA Natural Gas Inventory

    OPEC cuts global oil demand growth outlook, worried about glut next year

    • OPEC again cuts its forecast of global oil demand growth for 2018 and 2019, citing headwinds facing the broader economy.
    • In its monthly oil market report, OPEC says world oil demand this year will rise by slightly more than 1.54M bbl/day, 80K less than last month’s estimate, while 2019 oil demand is expected to rise by 1.36M bbl/day, 50K less than last month’s estimate.
    • OPEC Secretary-General Barkindo says the oil market is well supplied and projections for 2019 "clearly show a possible rebuilding of stocks," suggesting the group is in no rush to expand a June agreement that raises production.
    • Crude oil prices are lower following a spike in U.S. crude stockpiles reported by the American Petroleum Institute and ahead of the Energy Information Administration's release of official U.S. government inventory data at 11 a.m. ET; U.S. WTI -1.7% at $71.95/bbl, Brent -1.9% at $81.49/bbl.

    It's not a big amount and actually bullish as they are saying they are in no hurry to increase production to make up for any loss from Iran but the initial reaction may be more selling.


  16. It seems the storm may have been a bust for hitting /RB production so, if this report isn't a winner, I think I'm going to cut my losses. 

    Very disappointing action on the indexes so far.  


  17. Wow, /YG through the roof.  I should have held on, would have made up for my /RB losses…

    WPM still dogging it:

    5.98Mb build – bad.

    Distillates down 2.666Mb – well, it's a sign…

    Gasoline up 1Mb – bad but not as bad as API so I'm holding onto /RB for now hoping to get back to 2 even at $2.


  18. I think Europe may be causing this sell-off into their close.  We'll see what happens at 11:30.


  19. So far, bouncing off the 200 DMA. My guess is that a lot of that is bot driven…


  20. So far, so good with the Europe theory but let's watch out for another failure at the earlier bounces.  

    Those wimps finished at their lows and very bad breakdown at 3,200 on Euro Stoxx if they keep going:

    Below that there's no significant support until 3,000 as they gapped up to 3,200 in 2016.

    This is what I keep saying about moves without consolidations – they fall apart very easily – even after 2 years!  

    It would REALLY suck for us to go back to our 2016 levels but don't you think that we and Europe and Japan exist on the same planet, where our Corporations all do business?  

    So what's our bullish premise?  That the US "only" does about 60% of its business overseas, that we now have tax advantages for our companies, that we're "winning the trade war"?   Maybe it's that we don't have a Brexit hanging over our heads – that's a good one, but is it worth that kind of divergence?  

    Are Europeans stupid traders who have poor math skills and an even poorer grasp of facts.  No, wait, that's us!   

    The STP is up 166% and, since the LTP is still up 85% I don't think it's worth adjusting without real evidence of a breakdown or breakout so I'm going to take no action ahead of my trip but maybe tomorrow – if things are still weak, I'll want to add some more hedges.  We certainly have the money for it.  

    While it would be nice to lock in the STP gains – I certainly don't wan to be LESS hedged into the weekend, so that's not going to happen.  I'd rather give back the $40,000 gains than risk not being protected enough if we drop 10% on Monday because Trump says something stupid! 

    Bot driven/StJ – I agree, that's what the 5% Rule is for, to keep us from chasing bot bounces. 


  21. FTR – DAmn – meant to sell some cherry calls on this one…. too late….  it's getting battered with the FLA storm….  they this will hit them this qtr


  22. PYX

    Citron is out with a positive report – $65 target.


  23. Phil,

    If you had to take a stab at it, where should /CL end this contract cycle (6 days)? In the $71-73 range? Or do you think after the latest EIA reports we could go sub $70? Thx


  24. All – if this isn't posted already somewhere, it's a PYX report from Citron: Long Pyxus International (NYSE:PYX) – Short-Term Price Target of $65

    https://citronresearch.com/wp-content/uploads/2018/10/Long-Pyxus-International-Short-Term-Price-Target-of-65.pdf 


  25. FTR/Batman – Yes, bad luck on those.  

    PYX/Albo - Yikes, not too fast I hope.

    /CL/Sun – A week from Monday?  Well, we still have the Iran sanctions and some production is off-line but so is some demand so tough call but I think $70 will hold, maybe $72.50 but I have no desire to call the range.  Still think /RB makes more sense as a long, now $1.95.  

    Thanks Ilene.

    This was once the biggest company in America:

    Sizing up Sears bankruptcy

    • A detailed analysis by Credit Suisse on the proximity to Sears stores of other retail chains selling some of the same products yields some interesting results.
    • CS forecasts a notable boost to comparable sales of close to a full percentage for J.C. Penney JCP and Burlingston Stores BURL, while Marmazz (NYSE:TJX) and Ross Stores (ROST +1.4%) are seen gaining about 0.65 percentage point of comparable sales lift. Also seeing the meter move if Sears goes bankrupt is Macy's (NYSE:M) with an expected 45 bps comp improvement and Kohl's (NYSE:KSS) with 35 bps to the good side.
    • Speaking of Sears Holdings (SHLD -18.8%), sources tell the New York Post that Eddie Lampert is considering making a bid for the Kenmore appliances brand and home services business, as well as some real estate in a pre-bankruptcy deal. That plan is just one of many floating around.

    Reuters: Sears' Lampert weighs bid for assets in bankrutpcy filing

    • Sears Holdings (SHLD -18.8%) chief Eddie Lampert is considering a bid for some of the company's assets and real estate as a possible alternative to court-ordered restructuring as Sears preps its bankruptcy filing, Reuters reports.
    • That could stave off outright liquidation but would take some key assets off the table as Sears navigated the reorganization.
    • A traditional reorg is still a possibility, though.
    • Lampert is said to be looking at bidding for the Kenmore brand and home services business along with some real estate. He had already offered $480M for Kenmore and home services in a previous rescue plan and is now looking at that same approach through the bankruptcy process.
    • He could forgive some Sears debt in order to finance the purchases, Reuters notes.

    LMT still can't get those F35s right:

    Lockheed Martin F-35 jets grounded in wake of South Carolina crash

    • Lockheed Martin (LMT -1.3%) is lower after the Pentagon temporarily grounded all flight operations of its F-35 Joint Strike Fighter jets pending a fleet-wide investigation of engine problems that may have caused a Marine Corps plane crash last month.
    • Most of the global fleet of ~320 jets could be grounded for up to 48 hoursamid an inspection of fuel tubes in engines that are made by United Technologies' (UTX -0.3%) unit Pratt & Whitney.
    • CNBC reports ~10 jets at LMT's facility in Fort Worth, Tex., already have completed inspection and are planning to prepare for flight operations later today.
    • The "jack of all trades" fifth-generation fighter, valued at an acquisition cost of $406B, has been plagued with setbacks including faulty ejection seats, software delays and significant helmet display issues.

    Crude inventories rise 6M in the last week

    • EIA Petroleum Inventories: Crude +5.98M barrels vs. +2.6M consensus, +7.8M last week.
    • Gasoline +0.95M barrels vs. -0.04M consensus, -0.5M last week.
    • Distillates -2.7M barrels vs. -2M consensus, -1.75M last week.
    • Futures -2.5% to $71.34

    September Core CPI growth below consensus

    • September Consumer Price Index: +0.1% M/M to 252.44 vs. +0.2% consensus, +0.2% prior.
    • Core CPI +0.1% M/M vs. +0.2% consensus, +0.1% prior.
    • Core CPI +2.2% Y/Y vs. +2.3% expected, +2.2% prior.

    The Information: Amazon developing robots to replace human pickers

    • The Information reports that Amazon (AMZN -3%) is developing robots that could one day replace the human pickers who grab items from shelves for packing in its warehouses.
    • Sources say that one research project involves a robot that can visually identify items on a conveyor belt, pick them up with a vacuum gripper, and set them aside on a table or shelf. 
    • Amazon recently made headlines for bumping its minimum wage up to $15/hour. Yesterday, the tech giant adjusted the pay hike so that warehouse workers wouldn’t make less due to lost stock and bonuses.       
    • Previously: Amazon adjusts pay hike to cover lost bonuses (Oct. 10)

    Gold spikes to $1,218 as dollar strength slips

    • Comex gold climbs more than 2% to $1,218/oz. for its third straight daily gain, the metal’s best run since late August, as the dollar slips amid the global slump in equity markets.
    • "Now that the dollar and yields have eased back, gold is finding some solid support, especially given that the stock markets are selling off,” says Forex.com's Fawad Razaqzada. "The metal could extend its gains further should it finally crack that $1,205-$1,215 resistance range on a daily closing basis."
    • "Rising U.S. yields and general strength in the dollar have meant that investors have largely ignored gold. But people are seeing fairly good value at current levels on the back of some macro concerns," says ING analyst Warren Patterson.

    Credit Suisse expects Walgreens to push higher

    • Credit Suisse says Walgreen Boots Alliance (WBA +0.5%) passed the test with today's guidance update and sees some room for shares to move higher.
    • "We believe momentum in the shares should continue on the latest upside and respectable 2019 EPS guide, well ahead of consensus. While front-end pressures remain along with lingering overhangs from competitive dynamics, reimbursement/drug pricing, and questions around its next moves in a vertically integrating HC continuum, we are heartened by its less capital-intensive collaborative strategy, with an emphasis on strategic partnerships and JVs (vs. M&A), evidenced by recent deals with Humana, LabCorp, Kroger, among others," reads the CS summary.
    • The investment firm has an Overweight rating on Walgreens.

    U.S. mortgage rates jump to highest level in more than 7 years

    • With 10-year Treasury yields hitting seven-year highs, it's no surprise that mortgage rates are following suit.
    • 30-year fixed-rate mortgage average of 4.90% for the week ending Oct. 11 2018 climbs 19 basis points from the prior week, according to Freddie Mac's (OTCQB:FMCC) Primary Mortgage Market Survey. Last year at this time, the rate was 3.91%
    • "Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand," says Freddie Chief Economist Sam Khater. "While the monthly payment remains affordable due to the still low mortgage rate environment, the primary hurdle for many borrowers today is the down payment and that is the reason home sales have decreased in many high-priced markets."
    • 15-year FRM averaged 4.29% this week vs. 4.15% a  week earlier; year-ago rate was 3.21%
    • 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.07% vs.4.01%. Year-ago rate was 3.16%.

    Top PC makers gain in Q3 shipments

    • Worldwide PC shipments were up 0.1% Y/Y in Q3, according to preliminary Gartner data. The shipments totaled 67.2M.
    • EMEA, Asia/Pacific, and Japan all grew while the U.S. and Latin America declined. 
    • The market was driven by the steady corporate demand due to Windows 10 PC hardware upgrades, which should continue through 2020. Consumer demand remained weak despite the seasonal strength of the back-to-school season. 
    • Top PC players in the quarter: Lenovo with 10.7% growth, HP (HPQ -2.4%) up 6.2%, Dell (DVMT -0.5%) up 5.3%, and Apple (AAPL -0.1%) down 8.5%.  
    • But wait: IDC’s data shows the global PC market down 0.9% Y/Y to 67.4M units in the quarter. But the rankings of the top players stayed roughly the same as Gartner’s data. 
    • The performances suggest that Intel (INTC +0.2%) was able to spread around its PC chip supply to minimize damage from the shortage. Intel recently maintained that it has the capacity to meet its full-year revenue projection.  
    • Previously: AMD -4.5% on Intel's 10nm supply update (Sept. 28)

    Cryptos prove no safe haven in selloff

    • The cryptocurrency market crumbled right along with equities yesterday. Bitcoin (BTC-USD) is currently at $6,280 vs. around $6.7K right before the selling started.
    • The alts were smacked even worse, with Ether (ETH-USD) now struggling to stay above $200, and Ripple (XRP-USD) plunging to $0.413.

    Airline stocks poised for gains

    • The U.S. airline sector is on track to open higher despite the broad market decline after fare data comes in positive and Delta reports earnings.
    • U.S. airline fares rose for the third straight month with a 1.0% month-over-month gain in September on an adjusted basis .
    • The 1.0% mark follows a 2.7% rise in July and 2.4% increase in August.
    • The increase in air fares and ancillary fees amid strong travel demand is helping to offset higher fuel costs for airline companies. Earlier today, Delta said it expects a profit of about $5B this year, despite a $2B increase in annual fuel costs.
    • Keep an eye on the airline sector today amid the market turbulence. Delta is up 2.4% in premarket action, while American Airlines is 2.1% higher and Southwest is showing a 1.1% gain. United Continental  is up 2.2% and JetBlue is managing a 0.4% gain against a broad market showing red almost across the board.

    Junk bond investors pull cash as yield hits two-year peak

    • High-yield investors took back $5.36B from Oct. 4 to Oct. 9, the most since February and the fourth largest ever, JPMorgan wrote, citing Lippert.
    • Yields for BBs have climbed for five straight sessions, hitting a two-year peak, and CCC yields had the largest gain in more than seven years, closing at 9.29%.
    • Junk bond returns are down for five straight days, now up 1.50% YTD, but were up as much as 2.81% earlier in the year.
    • Source: Bloomberg First Word

    NSA security adviser says "nobody's found anything" on Chinese chips

    Walgreens Boots Q4 revenues up 11%; non-GAAP EPS up 13%

    • Walgreens Boots (WBAQ4 results: Revenues: $33,442M (+10.9%); Retail Pharmacy USA: $25,508M (+14.4%); Retail Pharmacy International: $2,886M (-1.9%); Pharmaceutical Wholesale: $5,568M (+2.3%).
    • Net Income: $1,512M (+88.5%); EPS: $1.55 (+103.9%); Non-GAAP EPS: $1.48 (+13.0%); Non-GAAP Net Income: $1,447M (+4.5%); CF Ops: $2,880M (+43.0%).
    • FY2019 Guidance: Non-GAAP EPS: $6.40 – 6.70.
    • Previously: Walgreens Boots beats by $0.03, misses on revenue (Oct. 11)

    McDonald's franchisees ready to take action

    • About 400 McDonald's (NYSE:MCD) franchisees met in Tampa yesterday to plot how to set up an independent operators' association as a vehicle to push for change with the restaurant company.
    • One of the major complaints of the group is that the costs of updating stores with new refrigerators for fresh beef and self-ordering kiosks haven't been offset by a higher level of sales.
    • Stated goals coming out of the meeting are for McDonald's U.S. franchisees to see 5% same-store sales growth this year and be cash flow positive for two years following the store remodel project.
    • Shares of McDonald's are down 0.81% in premarket trading to $167.00 after a 0.86% drop yesterday that actually topped broad market averages

    Astronauts survive Soyuz emergency landing

    • A Russian Soyuz rocket carrying a U.S. and Russian astronaut to the International Space Station failed during its ascent early Thursday, sending its crew capsule falling back toward Earth in a ballistic re-entry.
    • "They are in good condition," NASA said, "something went wrong minutes after liftoff."
    • It currently costs around $81M per person to ride a Soyuz to the ISS.
    • Previously: U.S. Air Force awards $2.3B in rocket contracts (Oct. 11 2018)

  26. Wow - with PYX sitting at almost $44 the Feb 2019 35/30 put verticals are filling at a $2.70 credit.  Good for a smaller account possibly?


  27. I wouldn't bet against them, story is too compelling and, as I said before, they do have revenues so they'll look impressive compared to the rest of the sector.  Meanwhile, if you are saying you can BUY the $35 puts and sell the $30 puts for a $2.70 credit – well you can't lose there but I doubt it would fill.


  28. Now I really have to go!


  29. Thanks Phil!


  30. Wow, Trump says that we cannot impose sanctions on Saudi Arabia because they want to spend $100B on weapons. But what happens if Iran wanted to buy some of our weapons – we lift the sanctions as well? Or Cuba or N. Korea? It's just because his buddy is running the show there.


  31. Oops, breaking down again! Below the 200 DMA everywhere now. If we don't bounce, it could become a rout soon because the bots will start selling.


  32. That's the 35/30 short put vertical on PYX (bullish), now filling at $2.75 credit. The put skew is impressive on this one. Profitable unless the stock drops around 20% in the next 127 days.

    Good week to be on the board :)


  33. LOL, we have erased all the gains for the year for the Russell. The NYSE is now negative and the S&P is barely hanging in there.


  34. Rolled my short VXX calls to the Dec. 80. I wish they had longer expirations because it would be fun to add but I don't want to go overboard.


  35. And Kanye is officially completely insane!


  36. Dude is a legend in his own mind…..


  37. I mean the guy is entitled to his own opinion but it should at least express that in a way that makes sense. 


  38. BBBY holding up nicely the past 2 days





  39. How One Nonprofit Is Expanding Health Care for the Uninsured


  40. What We Often Get Wrong About Automation



  41. On PYX, I went with the short $25/20 Feb bull put spread for $1.90.  Good return for an IRA as well.  


  42. NLY below $10


  43. Wild final hour


  44. Very similar to what we saw back in February and we bounce quickly then although we didn't close once below the 200 DMA then. We did in March but only one day. Tomorrow could be telling either way I think.


  45. Well, looks like I didn’t miss anything….  8)


  46. Same bounce lines as the quick sell-off reversed just as fast (so we throw out the spike).  



  47. Florida’s Panhandle coast devastated by historic Hurricane Michael





  48. Brexit Bulletin: Into the Danger Zone






  49. Trump steps up his attacks on Federal Reserve’s rate hikes





  50. Markets rebounding on China data, report of Trump-Xi meet


  51. The Trump Rally: A Play in Three Acts




  52. Senate confirms 15 more judges, wrapping up a GOP priority